New Star chief economist Simon Ward has called for coordinated action by the Bank of England and Debt Management Office to extend up to £40bn of longer-term funding to banks to finance mortgage lending.
Ward says there needs to be a further shift in the Bank’s market operations towards longer term lending. He also suggests widening the definition of eligible collateral for all longer-operations to include mortgages.
Another proposal would be the immediate repayment by the DMO of remaining government borrowing from the Bank to release funds for additional lending to banks.
Ward says there should also be extra gilt issuance by the DMO, with the proceeds deposited at the Bank for onward lending to banks.
Lastly, Ward calls for the introduction by the DMO of a “term securities lending facility.”
He says: “Cutting bank rate against a backdrop of accelerating prices and a tumbling pound risks entrenching high inflation expectations. The authorities should deploy their full arsenal of market measures before lowering official rates again.”